20 November 2011

This is kind of a continuation of my last post, which looked at a single income couple with children. Single income couples are interesting in that they are a family type which appears to be falling out of favour, at least from the perspective of their treatment by the tax-transfer system. This is perhaps most obvious when looking at single income couples without children.

The first chart shows the % change in disposable income since last year's election for single income couples without children, where both partners are in the age range 21 to 40. As with the earlier posts, the comparison is between similarly constituted households at different points in time, not the change for a particular household.

Here we can clearly see the impact of the removal of the dependent spouse tax offset (DSTO) from July 2011. With some exceptions, that change applies in respect of partners born on or after 1 July 1971. The complete removal of the DSTO for the affected group builds on the earlier introduction of a household income test (the $150,000 upper limit) which removed the DSTO (and Family Tax Benefit Part B) from higher income households.

The message apparently embedded in the tax-transfer system for these households (or the non-working partner at least) echos Paul Keating's famous 1995 jibe "Get a job...".

It's a simple message but, as so often happens with the tax-transfer system, a change in one part has flow-ons to another. In this case one effect has been a consequential increase in marginal tax rates on the earner in these couples, particularly at lower incomes. Here's how the effective marginal tax rate for the earner looked at the time of last year's election.

Here's how it looks now

Notice the increase in the EMTR in the income range (very roughly) $20,000 to $40,000. This is now sitting at 80% or more in a range where the National Minimum Wage resides. For these households a very large part of any wage case pay increase will be consumed by tax-transfer effects.

On the bright side, it's probable that there aren't an awful lot of single income couples who would have the right mix of circumstances to be affected by this change (eg, no children; young-ish partner who is not obviously precluded from working for one reason or another). For those who are, just listen to the sweet siren song the system is singing you. And probably in Paul's voice, no less.

12 November 2011

I'd been wondering what kind of household to look at following my inaugural single person outing when I was rescued by a story in the Telegraph about a 3-child couple, which I came across via a blog posting in Crikey!. It's about families who will not receive household compensation when the newly-enacted carbon pricing arrangments come into effect next year. It uses the Samuelson family to illustrate its impact on a single income couple earning $150,000 a year. Apparently, they will go backwards financially by about $700 a year.

Perhaps more entertaining than the article are the responses posted by hundreds of readers to both the Crikey and Telegraph stories. They cover a wide range of positions but one fairly common attribute is an over-enthusiastic assumption about the disposable income (ie, after tax and transfer payment imposts) of a Samuelson type household. The silliest of them is perhaps the claim from a few posters that they'll now have to make do with $149,300.

Before looking more closely at the disposable income issue, here's how the tax-transfer system has altered the disposable incomes of 3 child, single income couples in the private income range $0 to $200,000.

As with the single person in my last blog post, it's backwards most of the way. The main contributors are the non-indexation of the tax thresholds, plus the flood levy, and the freeze applied to various bits of the family tax benefit. At $150,000 the fall has been roughly 1%.

As an aside, it's interesting that the Telegraph's Samuelson family are at exactly $150,000 - any more and they would not get family tax benefit part B. The choice of this family does, I suspect, increase the likelihood of robust discussion in on-line comments, combining as it does a high income (relative to average and median earners in Australia) with the receipt of a transfer payment.

So, let's look briefly at the issue of comparative disposable incomes. I'm not going to look at how $150,000 earnings compares to the earnings of a typical Aussie. That's been canvassed in depth on other blogs (for example, Matt Cowgill has a nice article here). Instead, let's use a simple (I hope not simplistic) measure to compare households - in this case our 3 child single income couples.

At zero private income such a household would get the maximum assistance that the transfer system provides. Using that as a baseline, how does disposable income in the range $0 to $200,000 compare? In the chart below, the disposable income is shown as a multiple of the baseline. For example, if private income is $50,000 the households disposable income is about one and a half times the baseline. In other words, getting a job earning $50,000 would increase the unemployed household's income by 50%.

So, the Samuelson type houshold, at $150,000, gets 2.6 (two point six, not twenty six) times the income of the baseline unemployed household. You can draw you own conclusions from this, but I hope it helps in making a more appropriately sized choice of violin or rocket when pitching a response to the Telegraph article.

05 November 2011

Here's a picture of the way the tax-transfer system's treatment of a single person with an income in the range $0 to $200,000 a year has changed between the date of the last election and 30 September 2011.

The private income is in current (September 2011) dollars, on a CPI adjusted basis.

So, what's this telling us? Not a lot at this early stage, but we can see that the lack of tax cuts in the current term of government has caused an increase in real terms in the amount of tax paid compared to what was payable at an equivalent income in August last year. That means less disposable income in real terms.

On its own that might not amount to much, but consider how singles such as this fared over the previous two governments - Rudd-Gillard and the final Howard term.

Here's a picture for that story...

There are many reasons why this might be so (the flood/cyclone levy and the GFC for example) but I do wonder whether this difference in results has been noticed by the hip pocket nerve. If it has, to what extent has that affected perceptions about the current Government?